Large pharmaceutical firms such as Pfizer Inc. NYSE: PFE and Novo Nordisk A/S NYSE: NVO have been fighting to spend big on smaller companies in the space in recent months (the former of these companies completed the acquisition of weight loss drug maker Metsera in November 2025). But while M&A activity is sometimes a sign of aggressive growth, in this case, it may signal a response to a threat: a patent cliff that could see the loss of exclusivity for many of the world’s best-selling drugs in the coming years.
The $175 billion annual drug giant will face this fate in the next six years, and the number is even higher when looking at smaller names. While this is a dangerous obstacle for many big pharma companies, it is also an opportunity for investors. The coming years are likely to bring a flurry of M&A activity, which could lead to some new winners in the space. While it may be difficult for investors to predict which specific firms may come out on top, a pair of exchange-traded funds (ETFs) can position investors well to benefit from fluctuations in the industry.
Broad Access to the US Biotech Space, with a Focus on Small Firms
Company rating SPDR S&P Biotech ETF NYSEARCA: XBI tracks the S&P Biotechnology Select Industry Index, a collection of biotech stocks from the S&P Total Market Index. The index takes an adjusted equal-weighted approach and provides exposure to biotech names across the market capitalization sector. This is key for investors in the space, as small names can sometimes have huge success and great performance if a drug candidate gets approved or a new blockbuster drug appears. Investors may want to note that mid-caps make up about half of the portfolio, while small-caps represent the other 30%.
SPDR S&P Biotech ETF today
SPDR S&P Biotech ETF
As of 05/14/2026 04:10 PM Eastern
- 52 week interval
- $75.71
▼
$139.19
- Dividend Yield
- 0.33%
- Assets Under Administration
- $8.55 billion
XBI is more focused than a broad sector fund and is unique in that it is one of a small number of ETFs that specifically target the biotech industry. Its nearly 150 positions represent a broad spectrum of US biotechnology and, as such, it is able to capture the wins of many domestic drugmakers. The fund’s maximum holding is still less than 2% of total assets invested, so diversification helps reduce the negative impact of certain companies’ underperformance. On the other hand, the large profits of one company may also be diluted in the performance of XBI.
Still, XBI has done well in 2026, outperforming the broader market year-to-date (YTD) with a return of about 11% (compared to about 9% for the S&P 500). The fund also offers a small dividend. Considering that this niche industry fund is relatively unique, investors can expect its expense ratio to be 0.35%.
A Different Method for Wider Exposure But Higher Concentration
Rating of the company iShares Biotechnology ETF NASDAQ: IBBXBI’s direct competitor above, takes a different approach. Although the focus is mostly on US biotech names, such as XBI, it also includes other international stocks such as Dutch biopharma firm argenx. NASDAQ: ARGX. It also carries a wider basket than XBI, with nearly 250 positions in total.
Shares Biotechnology ETF today
iShares Biotechnology ETF
As of 05/14/2026 04:00 PM Eastern
- 52 week interval
- $116.49
▼
$179.64
- Dividend Yield
- 0.23%
- Assets Under Administration
- $8.09 billion
On the other hand, IBB is more concentrated in a smaller number of names than its SPDR peers.
The four largest stocks in its portfolio represent 28% of assets invested.
It also has a strong focus on big names, with 61% of the portfolio allocated to large firms. Like XBI, IBB pays a small dividend, which investors may find an attractive hedge against potential volatility in the biotech industry.
In terms of performance, IBB has lagged behind XBI so far this year, returning only about 2% YTD. Over the past 12 months, however, its return of more than 40% is compelling, outpacing the growth rate of the S&P 500.
Another consideration surrounding IBB is that its expense ratio is higher than XBI, at 0.44%. Investors looking for the broadest possible exposure to the biotech space may be willing to make that trade-off and spend more money in this fund. However, its recent performance record is not as compelling as other mutual funds in the sector. However, while IBB is more expensive than XBI, it remains cheaper than many other funds in the small biotech sector.
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